Index Wrap, Wednesday, 12/03/2003

NASDAQ 2,000 wasn't purely psychological

by Jeff Bailey

No one in their right mind would sell stocks just because the
NASDAQ Composite (COMPX) 1,960 -1% traded 2,000. Would they?

I sure has heck wouldn't have thought such a trade would have
triggered an intra-day reversal that saw the NASDAQ Composite
(COMPX) kiss the 2,000 level with a session high trade of
2,000.92, eventually see nearly a 40-point reversal take place in
the matter of 3 hours and 20 minutes. But that's exactly what
happened today.

I feel somewhat depressed, as I didn't see it coming, and intra-
day reversal that took place just after the NASDAQ Composite
(COMPX) traded 2,000, now sets the stage for a decline back to
the WEEKLY/MONTHLY pivots, but view WEEKLY S1s and the formidable
support levels.

WEEKLY/MONTHLY Pivot Matrix - $COMPX, $NYA.X, $TRAN

I've never placed the NASDAQ Composite ($COMPX), NYSE Composite
($NYA.X) 6,142.72 +0.05%, or the Dow Transportation Average
($TRAN) 2,939.51 +0.1% in a pivot analysis matrix, and perhaps I
wish I had. I'd love to try and track every major index/sector
in the matrix in each night's wrap, but time constraints simply
don't allow. However, using the basic formula from a prior Ask
the Analyst column on January 19, 2003
http://www.OptionInvestor.com/ask/ask_011903_1.asp
I, and most likely you the trader/investor would have appreciated
some observation that the NASDAQ Comp's WEEKLY R2, where the
WEEKLY R2 can often be the upper-end of a weekly range and mark a
point for institutional selling to provide liquidity to market
participants, was also very close to the 2,000 level, where we
could have been alert to some resistance.

One reason I wanted to also add the Dow Transportation Average
($TRAN) to a WEEKLY/MONTHLY matrix, is that in early November we
saw the $TRAN see an intra-day test of a psychologically round
3,000 level on November 7th, and then trade back eventually see
the TRAN trade back to as low as 2,837.42 by November 21 (10
trading sessions later). While the above table of WEEKLY/MONTHLY
pivots is for current WEEK of trade and the month of December, I
did go back and check levels for the TRAN for the week of
November 3-7. That week, when the TRAN tested 3,000, its WEEKLY
R2 was 3,008.54 and MONTHLY R1 was 3,011.24, so it would appear
the PSYCHOLOGY was at play. However, the pullback low of
2,837.42 found technical support at a rising 50-day SMA, a
MONTHLY Pivot of 2,743.81 and base of an upward trending
regression channel.

As such, a focus of tonight's wrap will be the MONTHLY Pivots,
and 50-day SMA's as levels of pullback support. Where investment
theory that Transports will often lead a market move will also
have us following up on the TRAN chart shown in prior wraps,
where I feel the 50-day SMA and correlative WEEKLY S1 of 2,864
become key levels of intermediate-term support for the $TRAN.

In today's 01:00 PM EST intra-day update I posted the follow
chart of the NASDAQ Composite (COMPX), where this chart was
captured right at the 01:00 PM EST strike. I showed the chart
with a conventional retracement overlaid from the early January
2002 relative high of 2,098.99 and early October 2002 low of
1,108.50.

NASDAQ Composite Chart - Weekly Intervals

Based on conventional retracement, I do feel a December/January
"Santa Claus" rally is still at hand, with the major test being
that the COMPX show support at 1,909.71. I'll quickly note that
a decline from 2,000 to 1,909 would represent a rather modest
4.5% decline.

Here's a quick look at the NASDAQ Composite (COMPX), but this
time with WEEKLY and MONTHLY Pivot retracement overlaid, where
here too we may seem some correlation this week with 1,909, in
the WEEKLY retracement.

NASDAQ Composite ($COMPX) Chart - Daily Intervals

Let me first say that I am NOT as convinced that institutional
computers would be trading pivot levels in the NASDAQ Composite,
but what the above chart does do is get our minds in a similar
perspective as the SPX and NDX, where these baskets of stocks
(SPX/NDX) will be bought and sold by institutional computers and
greatly influence price direction.

In today's futures monitor, both Jim Brown and Keene Little
(other analysts may have said something similar, but I saw
Keene's message per one of Jim's earlier notes) commented at
around 12:00 that NH/NL breadth was rather weak considering the
major indices making new highs. This may have been one of the
more telling comments that bullish leadership just wasn't what it
should be. I quickly posted our NH/NL breadth measurements taken
each day.

What I've also done in the above chart is post some various dates
and NH/NL breadth for the NASDAQ Composite. While I don't
chart/tally the daily results until the close, at the very top we
can wee how Monday (453:10) was quite strong and matched a
similar 11/07/03 (452:13) NH/NL breadth reading. However,
yesterday's NH/NL breadth (411:10) tapered off a bit, and I'm
impressed that Jim and Keene (maybe others) noticed some
suspicious lack of bullish leadership mid-way through the
session.

While these HIGH marks (in BLUE) give some relative high trade
benchmarks to the NASDAQ Composite, note in RED the recent two
relative low marks I've made for 10/24/03 and 11/21/03. While
these are single day observations, where it took the "weakest"
NH/NL breadth, I will want to track the very short-term 5-day
average ratio of breadth in coming sessions, which I will want to
compare to the recent little consolidation low from 11/18/03 to
11/21/03, where the 5-day ratio on 11/21/03 was 85.7%. This may
be helpful should at some point we see the COMPX or QQQ/NDX for
that matter, consolidate a low around the 1,925-1,930 zone of
support.

Since we're on the subject of market internals, the very broad
NASDAQ Composite Bullish % ($BPCOMPQ) saw a net loss of 0.01%, or
roughly 3 stock to point and figure sell signals in today's
trade. This very broad indicator of market internals is still
"bull confirmed" at 72.58%. This bullish % indicator reached a
high of 77.41% back on September 19, 2003, when the NASDAQ
Composite was trading.... Hmmmm... 1,909.

Now I'm thinking... BE ALERT for SIMILAR TRADE to that found JUST
AFTER 09/19/03. We might look for a continuation lower TOMORROW
to the WEEKLY/MONTHLY Pivot, then a BOUNCE back on Intel's mid-
quarter update to about COMPX 1,980.

But here is where I think the Transports then come into play.

Dow Transportation Average (TRAN) - Daily Intervals

MACD on the daily interval chart just crossed above its Signal
today and for that to remain bullish, I could see how the TRAN
really needs to hold above its 21-day SMA and the 2,925 level in
our retracement. This could be tough, but a very good test for
strength near-term as Stochastics are overbought (just like the
major indices) and in the past have seen the TRAN take a
breather. The BIG question is how much of a breather.

It is my thinking that the TRAN can not fall below its recent
relative lows of 2,838, without the TRAN as a sector signaling
more meaningful weakness as this would then have the TRAN making
a lower high, but more importantly, a lower low.

Don't think there aren't some transportation related stock in the
NASDAQ. Knight Transport (NASDAQ:KNGT) $24.00 +1.95% has traded
back from its September highs of $28.00 and in mid-November
slipped below its 200-day SMA of $24.22, where the 200-day SMA is
currently rising at $24.47, but finds the 50-day SMA providing
resistance in recent weeks and currently trends lower at $25.09.

While KNGT is not a component of the TRAN, ALEX, JBHT, NWAC,
ROAD, USFC and YELL are.

Dow Industrials (INDU) Chart - Daily Intervals

A lot of bears were growling in the bear's den, I mean the
futures monitor, once the INDU fell back below the 9,900 level.
While a bull isn't necessarily laughing at the close, I still
think the first sign of softening would be a decline back below
9,832. Still, it was General Motors (NYSE:GM) $45.54 +5.2% and
Merch (NYSE:MRK) $43.63 +3.56% doing the bulk of today's work for
bulls. Procter & Gamble (NYSE:PG) $96.81 -0.12% didn't come
close to the psychological $100.00 level.

S&P 500 Index (SPX.X) Chart - Daily Intervals

I was more focused on the SPX today and noting how the futures
were finding steady resistance at the 1,073.30 level that I was
for NASDAQ Composite 2000.00. There was a flurry of computer buy
programs today, which considering the number of buy programs on
the 5-minute time interval, just didn't have much impact on the
SPX itself. What the steady resistance in the futures has me
thinking is there was some BIG hedging taking place, where
futures were being sold against stock bought.

This evening on CNBC, I heard James Cramer mentioning that some
of his contacts said there were some institutional hedges being
initiated. This can create some near-term resistance, but will
give importance to 1,051.20 as a more significant level of
support.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

The QQQ really shows some "leading weakness" as it relates to the
WEEKLY Pivot levels, and perhaps the lack of "bullish leadership"
as it is the only major index to not have been able to take out
its early November highs. I would be looking for a bullish entry
on the QQQ as outlined in the chart ahead of the Intel mid-
quarter update. Other index traders SPX/OEX/INDU will want to
monitor the currently weaker QQQ for support at its WEEKLY/MONTLY
levels first, and if QQQ breaks below, then SPX/OEX/INDU traders
begin to plan for tests of WEEKLY/MONTHLY levels.

I will post the Pivot Matrix with DAILY Levels in tonight's
Market Monitor and in tomorrow morning's 09:00 Update.